Revenue Sharing and North America's Major Pro Sports Leagues

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Revenue Sharing in the NBA

Billy Hunter and David Stern
NBAPA president Billy Hunter and NBA commissioner David Stern smile at a press conference announcing that the NBA and the NBA Players Association have agreed on a new 6-year CBA prior to Game 6 of the 2005 NBA Finals. Getty Images / Brian Bahr

According to the NBA's financial data, ten teams combined to make a profit of approximately $150 million in 2010-11. And the other 20 teams lost their collective shirts to the tune of a $400 million. Clearly, the league has to do a better job of revenue sharing to be successful going forward.

Of course, that's easier said than done. The league's wealthiest owners could stand to sit through a kindergarten-level lesson on sharing. For example, the Los Angeles Lakers recently signed a 20-year television contract with Time Warner Cable worth a reported $3 billion. The deal loses approximately 10 percent of its value if a third team moves into the Los Angeles market. When the Sacramento Kings started flirting with Anaheim and the Honda Center, Lakers owner Jerry Buss strongly opposed the potential move and may have been instrumental in killing the deal.

Clearly, the NBA's richest teams - the Lakers, Knicks, Bulls and Celtics - aren't eager to prop up their weakest competitors.

Revenue Sharing and the NBA Lockout

The NBA's players union has sought to make a new revenue-sharing model part of this summer's collective bargaining discussions, but thus far the owners have resisted. As league commissioner David Stern has repeatedly pointed out, revenue sharing is not the sole solution to the league's problems; you can't share your way out of a hole. But Stern may have another motivation in keeping revenue sharing off the negotiating table; clearly, it is a "wedge" issue that might create cracks in the owners' unified front.

In that regard, the owners may follow the lead of the National Football League. The NFL's owners negotiated an updated revenue-sharing plan with each other while they were negotiating a new collective bargaining agreement with the NFLPA. Both were announced at the same time.

Revenue Sharing in Other Pro Sports

So how will the NBA's owners split their share of a $4 billion pie? Here's a look at how North America's other major pro sports leagues share revenues, and how the NBA might follow their lead.

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Revenue Sharing in the National Football League

Nick Collins celebrates his
Nick Collins #36 of the Green Bay Packers celebrates with teammate Clay Matthews #52 after Collins returned an interception for a touchdown against the Pittsburgh Steelers during Super Bowl XLV at Cowboys Stadium. Getty Images / Mike Ehrmann

The NFL's revenue-sharing model is universally lauded as the reason pro football continues to thrive in tiny markets like Green Bay, Wisconsin.

The bulk of the league's revenue - approximately $4 billion in 2011 - comes from broadcast deals with NBC, CBS, Fox, ESPN, and DirecTV. That income is shared equally among all teams. Income from licensing deals - everything from jerseys to posters to team-logo beer coolers - is also shared evenly.

Ticket revenue is split using a slightly different formula: the home team keeps 60 percent of "the gate" for each game, while the visiting team gets 40 percent.

Other sources of revenue - things like the sale of luxury boxes, stadium concessions and the like - are not shared, which does give teams in bigger markets or with state-of-the-art arenas a significant edge in profitability. The new CBA attempts to remedy that in two ways. First, the league will set aside a percentage of revenue in a stadium fund, which will be used to match teams' investments in their facilities. Second, there will be an additional "luxury tax" levied on high-revenue teams, with the receipts set to be distributed to the lower-revenue clubs.

While this system is very effective for the NFL, there are a number of reasons why it might not work for the NBA, where the bulk of each team's revenue comes from local sources - ticket sales, local and regional television contracts and the like.

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Revenue Sharing in Major League Baseball

Derek Jeter, Nick Swisher and Robinson Cano
Derek Jeter #2 of the New York Yankees congratulates teammates Robinson Cano #24 and Nick Swisher #33 after they scored in the sixth inning against the Boston Red Sox on August 31, 2011 at Fenway Park. Getty Images / Elsa

Major League Baseball has the widest disparity between the "haves" and "have-nots," with high-revenue teams like the Yankees and Red Sox spending three and four times as much on players as smaller-market clubs.

MLB has a fairly robust revenue-sharing system, which has been in place since 2002. In the current version, all teams pay 31 percent of their local revenue into a shared fund, which is divided equally among all teams. In addition, more of the money coming into the league from national sources - network TV contracts and such - goes to lower-revenue clubs.

MLB also has a luxury tax system, which forces teams with high payrolls to pay a dollar-for-dollar penalty. But the luxury tax funds do not go to lower-revenue clubs; those receipts go into a central MLB fund - the MLB Industry Growth Fund - used for marketing programs.

The "shared fund" aspect of MLB's system might work as a model for the NBA. But the Association has had a luxury tax in place for years, and that hasn't done much to curb payrolls. The next CBA will almost certainly have some other system in place to cap salaries - if not a "hard" salary cap than a soft cap with fewer exceptions.

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Revenue Sharing in the National Hockey League

Boston's Zdeno Chara holds the Stanley Cup
Zdeno Chara #33 of the Boston Bruins celebrates with the Stanley Cup after defeating the Vancouver Canucks in Game Seven of the 2011 NHL Stanley Cup Final. Getty Images / Bruce Bennett

The National Hockey League implemented a new revenue sharing system in the aftermath of the lockout that forced the cancellation of the 2004-05 season. About.com's hockey guide, Jamie Fitzpatrick, takes us through the basics:

  • The top ten money-making teams contribute to the pool. The bottom 15 money-making teams are eligible to collect from it.
  • The amount of money contributed by the top ten teams is set by a formula that includes a percentage of overall league revenues and some playoff revenues. The exact number isn't worked out until the season is over and all revenues have been counted.
  • For a bottom-15 team to collect a full revenue sharing cheque, it must reach at least 80% capacity in home attendance (last year that meant averaging about 14,000 per game) and show revenue growth that exceeds the league average. Missing either threshold means a cut in the share.
  • In 2010, a full share of revenue sharing was about $10 million.
  • Teams in markets with more than 2.5 million television households cannot qualify for revenue sharing. By my unofficial estimate, that means the Rangers, Islanders, Devils, Flyers, Blackhawks, Ducks, Sharks, Stars, and Kings are ineligible.
It seems reasonable to expect any new NBA revenue sharing system to borrow heavily from the NHL's; there are several voices in management that own teams in both leagues, including James Dolan (Knicks/Rangers), Ted Leonsis (Wizards/Capitals), the Kroenke family (Nuggets/Avalanche) and Maple Leaf Sports and Entertainment (Raptors/Maple Leafs). Plus, NHL commissioner Gary Bettman is a protege of David Stern, having served as the NBA's senior vice president and general counsel.